Covered Writing ETFs: Continued (Preview)

By Lawrence G. McMillan

We wrote an article last week regarding the Microstrategy (MSTR) covered writing ETF (MSTY).  The only addition there is to that information right now is that we observed their action regarding rolling the call credit spreads that are expiring today.  Mostly, they waiting until later in the week, and then rolled out just one week – resetting the strikes slightly in most cases.  These rolls took in considerable credits.

In addition, this week we looked at two others – CONY, the covered writing ETF on Coinbase (COIN), and NVDY, the covered writing ETF on NVIDIA (NVDA).  The strategy is the same as MSTR, and from the way that I see the prospectuses are laid out on the YieldMax website, it seems that the strategy is the same for all of their 40-some ETFs:

1) long synthetic stock (long call, short put with the same terms)

2) call credit spreads are sold against all of the long stock, with the short side of the call spread being out-of-the-money and the long side being a great deal out-of-the-money.

This strategy allows the ETF to take in large credits, but it can still participate on the upside on a large rally if the underlying (NVDA, COIN or MSTR, in the cases discussed so far) rises above the strike price of the long call in the call credit spread. 

CONY: CONY has paid out a great deal in dividends but not as much as MSTY.  CONY began trading in August 2023, and paid out its first dividend in October 2023.  It has paid a dividend every month.  The total of the dividends is...